Israeli media reported that a total of four Katyusha rockets hit the area, including one that struck a gas tank and caused a fire.
In Lebanon, a military spokesman said at least one rocket was fired from the region of Rumaysh, and at least four Israeli rockets were fired in response.
The UN peacekeeping force in Lebanon (UNIFIL) also confirmed the attack and urged maximum restraint to prevent an escalation.
UNIFIL commander Major-General Alberto Asarta Cuevas said the attack was clearly aimed at undermining stability in the area.
"It is imperative to identify and apprehend the perpetrators of this attack and we will spare no efforts to this end, working in cooperation with the Lebanese army," he said, adding that additional troops had been deployed.
The United States condemned the attack.
"We condemn the firing of rockets from Lebanon toward Israel," State Department deputy spokesman Mark Toner told reporters.
"This was a provocative act. It undermines the stability of Lebanon," he said. "We call on all parties to exercise restraint."
UN Lebanon envoy Robert Watkins called the attack a "very unfortunate incident" and hoped that the cross-border exchange "would be limited to what happened this morning and that there would not be any heightening of hostilities."
Residents of Ayta al-Shaab, near Rumaysh, said they heard four rockets being fired from nearby and seven rockets fired from Israel. There were no reports of casualties.
The region of Rumaysh is largely controlled by the powerful militant party Hezbollah, but the group did not comment on Tuesday's incident, which was claimed by an obscure Al-Qaeda-linked group calling itself the Brigades of Abdullah Azzam.
The same group claimed responsibility for the last rocket attack from southern Lebanon against Israel in 2009.
The attack came as an uprising in Syria has deepened a rift between the pro- and anti-Syrian camps in Lebanon, sparking fears that the conflict might spill over.
The unrest has also raised fears in Israel that pro-Syrian Hezbollah or other groups might attack the Jewish state to draw attention away from the uprising.
In Israel, military officials told army radio they wanted to avoid an escalation and said that the response would be "limited and selective."
Both Israeli government and military officials called on the Lebanese government and military to prevent rocket fire towards the Jewish state.
In Beirut, President Michel Sleiman denounced the attack on Israel, saying it was an "isolated" incident that breached his country's commitment to international resolutions.
"This... marks a violation of the stability in the south and a breach of UN Resolution 1701, Lebanese laws and Lebanon's obligations to the international community, primarily the United Nations," he said in a statement.
The most recent exchange of fire along the always tense Israeli-Lebanese border was on August 1, when soldiers from the two countries opened fire along the Blue Line, the UN-drawn border.
That incident came almost a year after Lebanese and Israeli troops traded fire along the same border, killing two Lebanese soldiers and a journalist along with a senior Israeli officer.
In 2006, Israel launched a war against Hezbollah that destroyed much of Lebanon's infrastructure and killed more than 1,200 Lebanese -- mainly civilians -- and 160 Israelis, mainly soldiers.
And in May 2011, tensions once again flared as protesters massed on the border between the two countries to mark the anniversary of the 1948 creation of the Jewish state, which Palestinians term the "nakba," or catastrophe.
Israeli troops killed 10 people and wounded more than 110 others as protesters tried to flood across the border from Lebanon.